The New Zealand not-for-profit (NFP) sector is facing a wave of changes to its financial reporting requirements. These changes, which include a new threshold for Tier 2 and Tier 3 reporting, updated requirements for incorporated societies under the Incorporated Societies Act 2022, and a revised Tier 3 reporting standard, will impact a wide range of organisations.
Who is affected?
These changes affect several groups:
- Current Tier 2 NFP entities with expenses less than $5 million that do not have public accountability.
- Incorporated societies that are not registered charities and have not previously adopted NFP standards.
- All Tier 3 NFP entities.
These changes are mandatory for most entities with financial year-ends on or after 31 March 2025.
Incorporated Societies
The final deadline for re-registering under the new Incorporated Societies Act 2022 is 5 April 2026. Before then, incorporated societies will need to ensure their new constitution complies with the new Act and is approved by members at a general meeting. We recommend that you register as soon as possible to avoid any complications.
For the first reporting period after the new constitution is registered, a society will need to prepare its annual report under the XRB’s standards. E.g. if your new constitution was registered in February 2025 and your financial year end is March 2025, you will need to follow the new Tier 3 reporting standard when preparing your 2025 annual report.
Key changes for Tier 3 entities
Whether an existing or new Tier 3 entity, the revised Tier 3 reporting standard introduces several key changes:
- Service performance reporting: There is new terminology to use in your service performance report and better guidance on how to select your ‘significant activities and achievements’.
- Asset valuation: Tier 3 entities can now revalue property, plant and equipment based on independent valuations or rateable values, and publicly traded financial investments can be measured at their current market value.
- Opting up: The opting-up provisions now allow Tier 3 entities to recognise certain transactions directly in accumulated funds rather than in comprehensive revenue and expenses when opting up to Tier 2 standards. This simplifies the process and reduces the reporting burden for entities choosing to opt up.
- Accumulated funds: The new disclosure requirements for accumulated funds enhance transparency and accountability. Entities must now provide detailed information about how they manage their reserves, including the purpose, plans and expected application of each reserve. This helps stakeholders understand how the entity is using its resources to achieve its objectives.
- Revenue and expenses categories: The revised categories for revenue and expenses provide greater clarity and make it easier to aggregate and report financial information. The new categories are more clearly defined, and entities can still relabel them using terminology more appropriate for their specific circumstances. This flexibility allows for customised reporting while maintaining consistency and comparability across entities.
- Revenue recognition: The new model for revenue recognition replaces the previous ‘use or return’ conditions with a focus on ‘documented expectations’ for significant grants, donations and bequests. This change aligns Tier 3 reporting with Tier 2, promoting consistency and accuracy in revenue recognition.
Next steps
We recommend that Tier 3 organisations should take the following steps to prepare for these changes:
- Understand the specific impact of the changes on their organisation. In particular, all entities will be affected by the changes in service performance reporting and the new revenue and expense categories
- Work with their accounting provider to ensure compliance. Make contact before the end of your financial year so that you are well prepared.
Relevant resources
- Incorporated Societies website: https://is-register.companiesoffice.govt.nz/
- Getting ready for re-registering: https://is-register.companiesoffice.govt.nz/assets/IS-Guide-to-reregistering.pdf
- Financial reporting standards for small societies: https://is-register.companiesoffice.govt.nz/help-centre/financial-reporting-standards-for-small-societies/
- Charities services: https://www.charities.govt.nz/
- XRB website: https://www.xrb.govt.nz/standards/accounting-standards/
- Tier 3 (NFP) standard: https://www.xrb.govt.nz/standards/accounting-standards/for-profit-standards/tier-3-not-for-profit-standard/ (for detailed information on the new reporting requirements)
By proactively addressing these changes and utilising the available resources, NFP organisations can ensure they meet their reporting obligations and maintain transparency and accountability in their financial reporting.
If you’d like help in navigating these NFP reporting changes, contact your local William Buck Advisor today.
